MINNEAPOLIS — A federal judge has issued a Temporary Restraining Order freezing the assets of a St. Paul treatment program at the center of a KARE 11 investigation.
Judge Katherine Menendez ruled that “more likely than not” Evergreen Recovery, its owners and affiliated companies “engaged in an illegal and fraudulent scheme to bill Medicaid for substance abuse treatment services not provided” and in an “illegal and fraudulent kickback scheme” in violation of federal law.
Federal authorities estimate the “fraudulent conspiracy” totals “at least $28 million.”
The judge’s order was signed last week but was sealed to allow authorities to continue their investigation.
On Tuesday, dozens of agents from the FBI and the U.S. Department of Health and Human Services (HHS) raided Evergreen headquarters – and were seen seizing box after box of evidence.
One of the duties of HHS is investigating allegations of Medicaid fraud.
The government raid came in the wake of KARE 11's multi-part "Recovery Inc." investigation which exposed Evergreen owners David Backus and Shawn Grygo living a lavish lifestyle - with expensive cars and travel on private jets - as their company billed millions of dollars to taxpayer-funded Medicaid for services clients and employees said were not always provided as claimed.
KARE 11 documented other examples of questionable billing at Evergreen. Both workers and clients accuse the company of improperly billing taxpayers for treatment never provided, falsely billing group activities as if they were a series of individual interactions and overstating the times spent on van rides to and from recovery treatment.
KARE 11’s reporting is cited in an FBI affidavit attached to the case.
In an earlier interview with KARE 11, Backus denied any deliberate wrongdoing.
Judge Menendez has scheduled a hearing in the case – including whether to appoint a receiver to oversee Evergreen’s assets – for August 8th.
“Scheme to defraud”
The judge’s order – and the government filings requesting it – were unsealed Wednesday afternoon.
The newly unsealed records reveal the depth of the suspected fraud – including kickbacks and false claims costing taxpayers tens of millions of dollars.
According to the government, the vast majority of Evergreen’s roughly 600 clients receive their health care through taxpayer-funded Medicaid programs.
In requesting a permanent injunction against Evergreen, the U.S. Attorney’s office detailed what it calls a “scheme to defraud” by billing Medicaid for substance abuse treatment services that were not provided.
For example, the government claims Evergreen “routinely adds client names who did not attend group counseling” to attendance logs used to bill Medicaid.
What’s more, the government says Evergreen has billed meals they’ve served as “group counseling” by claiming the meals provided “therapeutic recreation.”
According to the filing, investigators estimate that “between 30 to 40 percent” of the hours Evergreen has billed for group counseling “are falsified.”
The government also accuses Evergreen of engaging in an “illegal and fraudulent kickback scheme” in which it provides free housing in return for clients participating in the company’s Medicaid-billable treatment programs.
Private jets and luxury vehicles
The court filing says Evergreen owners Backus and Grygo have used the money they’ve gotten from the fraud scheme to buy expensive homes and luxury vehicles. It says they “frequently travel via private jet and take expensive vacations.”
The new records detail how Evergreen’s owners pocketed millions – and paid CEO Shantel Magadanz $703,539 last year.
In seeking to freeze Evergreen’s assets, the government argues the owners “are dissipating, and will continue to dissipate the proceeds from their fraud scheme.”
Citing complaints that Evergreen have recently been “unable to pay its employees on at least three separate paydays,” the government asked the judge to take immediate action.
Civil and Criminal investigations
The Restraining Order was issued as part of a civil case. To date, Evergreen and its owners have not been charged in criminal court.
However, a sworn affidavit filed by FBI Special Agent Kurt Beulke says he is assigned to “parallel civil and criminal investigations” of Evergreen. He says the investigations are being conducted by the FBI, HHS and the Minnesota Attorney General’s office.
Citing KARE 11’s reports and witnesses the government interviewed, the FBI affidavit says group therapy attendance logs submitted by counselors were “altered” and that billing records were “falsified” to add the names of people who didn’t actually attend treatment.
Then, it says “Evergreen created false clinical notes to support those false entries.”
Witnesses also told investigators that Evergreen used the offer of free housing to recruit homeless people to enroll in its taxpayer-funded substance abuse program “regardless of whether they need or want” the treatment.
The FBI affidavit cites “dangerous” conditions and “open drug use” at the Evergreen’s sober homes and quotes multiple witnesses who claim that “staff have been instructed to forgo calling for emergency responses or police services” and “to silence clients who attempt to complain about safety.”